Case Name : PTC India Financial Services Ltd vs Venkateswarlu Kari & Anr Case Reference: (2022) 9 SCR 1063 Case Number: CA No. 5443/2019 Court: Supreme Court Bench: 02 Coram: Sanjiv Khanna (Author), MR Shah Date: 12.05.2022
Contract Act does not recognise sale of pledged goods by pawnee to self
Contract of pledge should satisfy the following conditions
- There should be bailment of goods as defined in section 148
- Bailment must be by way of security
- Security must be for payment of debt or performance of promise
Hypothecation and mortgage of movables though not specifically mentioned in the Contract act are valid and enforceable. Such transaction beyond the statutory framework are given effect to and interpreted by courts according to principles of justice, equity and good conscience.
A term mutually agreed by parties for a contract of pledge is valid as long as it is not contrary to or inconsistent with any provisions of the Contract Act
Hypothecation is a right which a creditor has over a thing belonging to another and consists in the power to cause it to be sold in order to be paid his claims out of the proceeds. It is an act of pledging a thing as security for a debt or demand without parting with the possession. It follows as a consequence that although the property remains in the possession of the debtor it cannot be transferred to a third party without the express consent or permission of the creditor
An owner has
- Right of possession
- Right of enjoyment
- Right of disposition
A pawnee does not have right of ownership but has limited right to retain possession till debt is paid or promise is performed. A pawnee’s right of disposition is limited to disposition of pledge rights only and right to sell after a reasonable notice. Even when pawnor makes default in payment of debt or performance of promise, pawnor has right to redeem the pawn till ‘actual sale’ of the pawn by the pawnee. Pawnor would however must, in addition to the debt, pay to the pawnee the additional expenses arisen because of the debt. Where money is advanced by way of loan and upon mortgage of goods, transaction may take form of mortgage or pledge.
Difference between pledge and mortgage of movable property is that while under pledge there is only a bailment and under mortgage there is transfer of right of property by way of security.
Unlike a pledgee, a mortgagee acquires general rights in things mortgaged subject to right of redemption of mortgagor. Legal estate in goods mortgaged passes on to the mortgagee A pawnee only has the special rights in the goods pledged – right of possession as security and in case of default, to bring a suit against pawnor as well as to sell the good after giving reasonable notice.
Whether a particular transaction is a mortgage or pledge is to be determined by reference to intention of parties and other surrounding circumstances.
Refer also: Md Sultan & Ors vs Firm of Rampratap Kannayalal, Hyderabad AIR 1964 AP 201 ; Sri Raja Kakarklhpudi Venkata Sudarsana Sundara Narayasamma & Ors vs Andhra Bank Ltd Vijayawada & Ors AIR 1960 AP 273; Simla Banking and Industrial Co Ltd vs Pritams AIR 1960 Punj 42; Arjun Prasad & Ors vs Central Bank of India 1954 SCC OnLine Pat 138
See also: Contract - Section 148 Contracts - Section 151 Contract - Section 152 Contract - Section 153 Contract - Section 154 Contract - Section 155 Contract - Section 156 Contract - Section 157 Contract - Section 160 Contract - Section 161 Contract - Section 163 Contract - Section 176 Contract - Section 177 Contract - Section 179 SARFAESI - Section 2
PDF: PTC India Financial Services Ltd vs Venkateswarlu Kari, (2022) 9 SCR 1063.pdf
PTC India Financial Services Ltd vs Venkateswarlu Kari, CA 5443-2019 (SC).pdf